On March 3, 2021, the U.S. Small Business Administration (SBA) issued new Paycheck Protection Program (PPP) rules for self-employed Schedule C borrowers. Click here to view the full 32-page document on the SBA website.

The new regulations have changed how self-employed borrowers can calculate their PPP loan amount. Self-employed borrowers can now calculate their loan using gross income as opposed to net income on their Schedule C. The SBA recognized the previous definition was leaving out businesses with low or negative net profits. By allowing the loan based on gross income, it will provide a self-employed borrower a loan amount that is sufficient to meet their fixed expenses in order to stay in business.

This change is not retroactive.  If a borrower has already been approved for a PPP loan, they cannot increase their PPP loan based on the new methodology.  If both gross income and net profit is less than zero, the borrower is not eligible for the program.

Under the new regulations a self-employed borrower would calculate the owner’s compensation portion of the PPP loan as follows:

No Employees:

• Use either gross income (line 7 of Schedule C) or net profits (line 31 of Schedule C) from Schedule C 2019 or 2020; amount still limited to $100,000.
• Determine average monthly net profit or gross income by dividing the prior step by 12 * 2.5 not to exceed $20,833.

Borrower has Employees:

• Net profit (line 31 Schedule C), or
• 2019 or 2020 gross income (line 7 of Schedule C) minus expenses reported on lines 14 (employee benefit programs), 19 (pension and profit-sharing plans), and 26 (wages (less employment credits)) from Schedule C. Subtracting the employee costs eliminates double counting of employee payroll costs. Maximum amount of eligible partner compensation is still limited to $100,000.

To mitigate fraud, if a borrower is using the gross income method and gross income is more than $150,000, the borrower may be subject to a review by the SBA. The safe harbor that SBA previously applied to borrowers that, together with their affiliates, received PPP Loans with an original principal amount of less than $2M, will not apply to Schedule C filers using this method.

If you need assistance or have any questions on the PPP loan calculations, please call your CironeFriedberg professional. You can reach us by phone at (203) 798-2721 (Bethel), (203) 366-5876 (Shelton), or (203) 359-1100 (Stamford), or email us at info@cironefriedberg.com.

To provide much needed assistance and remove PPP expense ambiguity, the House and Senate voted on December 21, 2020 in favor of the Consolidated Appropriations Act, 2021, sending the measure to the President who is expected to sign. Highlights follow:

PPP Updates and Changes

• Businesses that received PPP loans will be allowed to deduct the expenses paid by those loans as the legislation overturns the IRS position that the expenses were not deductible.
• Additional PPP loans will be available for first-time qualified borrowers from the following groups; businesses that have less than 500 employees that are eligible for SBA 7(a) loans; sole-proprietors, independent contractors and eligible self-employed individuals; Non-profits, including churches, and certain accommodation and food services operations with fewer than 300 employees per physical location
• Previous PPP recipients may apply for another loan provided that they have 300 or fewer employees, have or will have used the full amount of their original PPP loan and can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019.
• The calculation of the loan amount will be the same as the first round using 2.5x the average monthly payroll costs prior to the loan or calendar year. However, certain hotel and restaurants can get up to 3.5x their average monthly payroll costs.
• Loans will be capped at $2M as opposed to $10M in the first round.
• The forgiveness parameters are the same as those from August and require that 60% of the funds to be spent on payroll
• The legislation requires a new simplified loan forgiveness process for loans of $150,000 and less; repeals the requirement that PPP borrowers deduct the amount of any EIDL advance from their forgiveness amount and includes support for first and second time PPP borrowers with 10 or fewer employees, borrowers that have become recently eligible and community lenders.

Other Business Provisions

• 100% business meal deduction will be allowed as long as the expense is provided by a restaurant and incurred after December 31, 2020 and expires December 31, 2022.
• The legislation also provides $15 billion for independent movie theaters and cultural institutions and $20 billon for targeted grants through the Economic Injury Disaster Loans (EIDL) program.

Individual Provisions

• A second set of $600 stimulus checks for individuals making up to $75,000 per year and $1,200 for married couples making up to $150,000 per year, as well as an additional $600 for each child dependent. There will be a reduction in the benefit as income exceeds these amounts.
• The legislation extended unemployment benefits up to $300 per week and will start December 26, 2020 and run through March 14, 2021.
• The bill extends the Pandemic Unemployment Assistance (PUA) program with expanded coverage for contract and gig workers, and the Pandemic Emergency Unemployment Compensation (PEUC) program that provides additional weeks of federally funded unemployment benefits to individuals whose need surpasses their states benefits have been extended.
• The moratorium on evictions that was slated to expire on December 31, 2020 has been extended to January 31, 2021 and the legislation has set aside $25 billion in emergency assistance for renters.

Other Provisions

• Colleges and schools benefit with $82 billion ear marked for HVAC repair and replacement to reduce the risks of infections and reopen classrooms and the legislation also includes $10 billion for child-care assistance.
• The bill provides $45 billion for transportation related assistance including additional support for airliner employee and contractor support as well as funds for transit, highways, intercity buses, airports and Amtrak.
• The bill extends or makes permanent certain tax credits or deductions set to expire at December 31, 2020.

This is great news as we end 2020. If you need assistance or have any questions on the new COVID-19 Emergency relief Package, please call your CironeFriedberg professional. You can reach us by phone at 203-798-2721 (Bethel), 203-366-5876 (Shelton), or 203-359-1100 (Stamford), or email us at info@cironefriedberg.com.